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May 20, 2008

Philippine finances seen flagging after April surplus

After recording a budget surplus of 25.8 billion pesos ($604 million) in April, the highest since 1986 for the month, the Philippines’ finances may deteriorate as economic growth slows amidst the government hikes spending to compensate, Reuters reported quoting economists.

The government repeated on Monday it still aimed to balance the books this year and end over a decade of deficits but it admitted that global economic uncertainty weighed on that goal.

"We don't have a clear idea of the impact of the slowdown," Finance Secretary Margarito Teves told reporters. "It's very difficult to make that assessment."

In April, the government's surplus was more than double the 12 billion pesos surfeit recorded last year and it halved the deficit in the first four months of 2008 to 25.8 billion pesos.

The Philippines, which relies on debt to finance its budget shortfalls, traditionally records a surplus in April because it is the deadline for the payment of income taxes. But April's budget was not cause for optimism, analysts said.

"The outlook, as far as I am concerned, is still soft," said Vishnu Varathan, economist with Forecast Pte. "I think that both revenues will be burdened by the slowing global growth while expenses will be pushed up by the expansionary fiscal initiatives, not to mention food subsidies."

"Something has got to give, and safeguarding growth, and keeping inflation in check, will cost the government."

Revenues in April jumped 21 percent to 122 billion pesos from a year ago driven mainly by collections by the main tax office, which is trying to combat widespread tax evasion.

Over two-thirds of self-employed people in the Philippines, from doctors to taxi-drivers, are officially estimated to pay less tax than they should.

Last year, Manila relied on record privatisation proceeds of 90.6 billion pesos to compensate for weak collections but this year it has earmarked just 30 billion pesos worth of asset sales.

Expenditures rose 8 percent in April from a year ago and are expected to climb in the months ahead as Manila spends to shield consumers from slowing growth and the rising cost of basic commodities, including the staple food, rice.

Economists said the market had already factored in a budget deficit this year. Last year, the deficit amounted to 0.2 percent of gross domestic product.

"As of now, I am looking at a 0.2 percent of GDP (deficit) for the full year. This is due to poor collections and also slower asset sales this year. They won't have any buffer to rely on and spending is going to be higher," said Radhika Rao, an economist at IDEAglobal.

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